The difficulty to create new growth during the pandemic is, in large part, due to the high cost of switching operating models internally — the sunk cost of those unique physical assets — and the inability to leverage advantages from partners quickly. Still, the limitation has not been universal.
A dozen or so digital giants are competing in a boundaryless world. They create advantages by leveraging partnerships, investments, and alliances in continuously adapting their offering to the changing customer: an ecosystem advantage. These companies do not own the assets that create a competitive advantage; they do, however, own the users.
Take, for instance, Alibaba Group, which owns the largest online retail businesses in China, but also the world’s highest-valued FinTech (Ant Financial), a global logistics network (Cainiao), a massive digital health care platform (Alibaba Health), a cloud computing service (Aliyun) and companies in many other industries. Or Japan’s Recruit Holdings, which started in HR recruitment and grew to include companies in areas as diverse as tourism, dining, education, used-car sales, and payment systems.
And as it seems, owning users seems to be working out well for these digital giants. We see digital giants such as Amazon in the US and Alibaba and JD.com in China rapidly recruiting new employees in the last month to fuel their growth. For instance, JD.com, a Chinese ecosystem of retail, logistics, technology, and finance, has launched a talent sharing plan to temporarily hire staff from affected sectors such as restaurants and small shops. Their logistics arm, one of the largest in China, JD Logistics, said to open over 20,000 frontline positions from warehousemen to couriers.
While digital platforms have a natural advantage as they have increasingly low switching costs, traditional incumbents can also borrow a similar logic. Take, for instance, Ping An, the world’s second-largest insurance company. It did not come as a surprise on April 26, when its earnings report for Q1 came out, that the profits have had a historical drop: over 42%. Many of the largest insurance companies such as MetLife and UHG had seen massive drops in profits and downgrading of their S&P ratings.
However, the same report of Ping An also saw the number of retail customers increased, a 14.7% y-o-y profit increase for banking, and the corporate premium income through cross-selling grew by 173.2% y-o-y. The co-CEO of Ping An, Jessica Tan, suggested that the virus might have helped generate requests from “over 30 banks”. The day after the earnings report, Ping An launched Ping An Consumer Finance.
But that is not all. Their adjacent business in digital healthcare, Ping An Good Doctor is having a boon. While being largely loss-making since inception, the last weeks are promising a road to profitability. Ping An Good Doctor saw their domestic user base jumping 10 times and their overseas consultations reaching over 10 million. On top of that, the joint venture with Grab in Indonesia saw a hiring spree of new doctors to meet demand.
In February 2020, it announced plans to expand its non-insurance technology investment to deepen this advantage during the crisis. As the founding chairman and chief executive, Peter Ma Mingzhe said, “This fight against the outbreak highlights the importance of technology to the transformation of the country and industries.”
Ping An managed to create an ecosystem advantage after a decade of business transformation. It was one of the first insurance incumbents to transform its business into an ecosystem focused in five areas: finance, property, automotive, health care, and “smart city” services.
What makes Ping An’s ecosystem particularly powerful is the “full-stack” of interdependent businesses that run autonomously in sectors adjacent to Ping An’s core financial offerings. These businesses represent a wide variety of revenue streams and business models, and they fulfill several customer needs, with opportunities to cross-sell and attract new clients from one business to another. Therefore, when a customer needs in times of crisis substantially change, it is still likely that some of the offerings inside the ecosystem meet the needs.
Though building a full-scale business ecosystem like Alibaba, Amazon, JD.com, and Ping An’s require consistent investment over the long run, there are a few steps companies can take to crisis-proof their business in the short term. There are three ways in which your partners are more valuable than you think.
First, rather than turning all attention inwards, now is the time to reach out to your partner network. Letting your partners know that you are open for business is now more important than ever. This is not the time to figure it out alone and go for that perfect product. Now is the time to get stuff on the market as quickly as possible.
Second, akin to Ping An’s technology stack, make an inventory of your competences and technologies that might be useful for your business partners. Remember that probably close to 90% of all patents never recoup the cost of filing them and that almost no patented discoveries ever get used. So there really is very little risk in sharing what you have lying on your shelf.
Lastly, real-time market intelligence is golden. Your partners are your market tentacles and together you will realise more than you can on your own.
Mark J. Greeven is a Chinese-speaking Dutch professor of innovation and strategy at IMD Business School in Switzerland and the author of “Pioneers, Hidden Champions, Changemakers, and Underdogs” (MIT Press, 2019).
Howard Yu is the author of “LEAP: How to Thrive in a World Where Everything Can Be Copied” (Public Affairs, June 2018), LEGO professor of management and innovation at the IMD Business School in Switzerland, and director of the Advanced Management Program (AMP).
